Empirical analysis of risks’ influence on the large mergers and acquisitions projects’ success in modern companies

Abstract

Mergers and acquisitions (M&A) are among the key strategies for stabilizing and strengthening a company's market position in an unstable economic environment and gaining a competitive advantage from inorganic growth. Doing so, big M&A deals show a higher risk of failing, being terminated, or being incomplete, which can lead to financial, reputational, and time losses. Due to these factors, prudent risk-management of such transactions is necessary, including the evaluation of the degree to which various risk groups influence M&A success. This paper evaluates big (those the value of which exceeds 10 billion euros) M&A projects risks influence on the success of the deal closure quantitatively and offers recommendations for managing significant risks using the project methodology. The analysis includes probit-regressions on a wide sample of 24 countries and 10 amalgamated industries. As a result, five risk groups appear significant: risk of transaction's hostile nature; cross-country risks; risk of misjudging the transaction value; risks associated with the size ratio of target and acquiring companies; risk of delaying the terms of the deal. Transnational mergers and acquisitions demonstrate a stronger influence of all significant risks on the transaction's success. The paper provides recommendations for managing significant risks using the project methodology.